UAE pledges $3bn loan to help cash-strapped ally Pakistan | News

The United Arab Emirates has pledged a $1 billion loan to cash-strapped Pakistan and agreed to roll over an existing $2 billion loan in a bid to boost the South Asian nation grappling with an economic crisis, according to Pakistan’s prime minister’s office.

Pakistani Prime Minister Sheikh Baz Sharif made the announcement on Thursday following talks with UAE President Sheikh Mohamed bin Zayed Al Nahyan in the capital Abu Dhabi, his third visit since taking office last April gulf countries.

The two leaders “agreed to deepen investment cooperation, promote partnerships and create opportunities for investment integration between the two countries,” the PMO statement said.

Since taking office, Sharif has struggled to get the economy on track, with his first finance minister, Miftah Ismail, resigning abruptly last September.

Islamabad is negotiating the next loan from the International Monetary Fund (IMF), seeking financial assistance from close allies such as Saudi Arabia and China, in addition to the UAE.

Ismail told Al Jazeera the decision to roll over the fund was “good news for Pakistan”, with some analysts seeing the announcement as much-needed relief for the country, whose central bank’s foreign exchange reserves have been depleted to less than 4.5 billion, covering less than a month’s worth of imports.

“Unstable economy”

Islamabad-based economist Amar Habib Khan said the extra funding would provide timely support to Pakistan’s shaky economy.

On Wednesday, the World Bank cut its gross domestic product (GDP) growth forecast to 2%. The dire economic situation has forced the government to take extreme measures, such as closing malls and restaurants early.

“This funding will provide some support for Pakistan to manage its imports. However, to emerge from the crisis, it does need more infusions of dollars, which requires the IMF program to continue,” he told Al Jazeera.

Pakistan has been trying to persuade the International Monetary Fund to release the next tranche of a $1.1 billion loan, which has been pending since September due to an impasse between the two sides.

Funding is contingent on the country agreeing to various conditions from the lender, such as raising energy prices and broadening the tax base. Pakistan joined the IMF program in 2019, and the last tranche of the fund worth $1.17 billion was delivered in August last year.

Some experts warn against donor fatigue over Pakistan’s reliance on bilateral funding.

Asad Saeed, an economist in the port city of Karachi, told Al Jazeera, “It’s like giving money to a drug addict who promises to rehabilitate but comes back for more money.”

Saudi Arabia deposited $3 billion with Pakistan’s central bank in October, and there are reports that Saudi Crown Prince Mohammed bin Salman has asked the Saudi Development Fund to study an additional $2 billion in deposits.

China remains Pakistan’s largest lender at $30 billion – a third of its external debt.

“No choice but to accept the IMF’s plan”

Saeed, who works for the research firm Collective for Social Science Research, said Pakistan had little choice but to accept the IMF’s plan.

Pakistan must repay more than $20 billion in debt over the next 12 months, according to the central bank. A deal with the IMF could help unleash more bilateral aid.

Saeed said not joining the global lender’s plan would have “unimaginable consequences”.

One of the risks is a default, which would crash the economy.

“Authorities have to ask themselves whether they are willing to let a surge in inflation hit the population, or whether they want to put themselves in a situation where the country doesn’t have any fuel or beans or all the things we import. We are an import-dependent economy and running out of dollars will Bringing us an unprecedented situation,” he warned.

The Pakistani government has been reluctant to accept the IMF’s plan because of tough conditions, which include cuts to subsidies, which could further drive up inflation.

Government data showed Pakistan spent more than $30 billion on imports in the last six months of 2022, of which more than $5 billion was spent on petroleum products.

Pakistan was already battling the aftermath of devastating floods last year Killed 1,700 people and caused billions of dollars in damage.

The country secured more than $10 billion in funding at an international donor conference in Geneva last week to rebuild the flood-ravaged country, much of it in the form of loans.

Sharif invited UAE President to visit Pakistan for a state visit and it was accepted.

The Pakistani PM is scheduled to meet the UAE Prime Minister and Ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum.

He is also expected to hold meetings with Emirati businessmen and investors to discuss ways to enhance bilateral trade between Pakistan and the UAE.

Two days earlier, Pakistan’s new army chief, General Saeed Asim Munir, also met UAE President Naihan as part of a week-long visit that also includes close ally Saudi Arabia.